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The Art of Organization

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Resource Guide


This Isn't Your Grandfather's Payment Industry

I am flattered that The Green Sheet has asked me to update this ancient series of "Knowledge Is Power" articles, first written in December 1997.

Of course, all of us are at different places in our lives than we were five years ago. I sure am. In 1997, after 10-plus years as a struggling ISO with 2,500 merchants processing a half-billion dollars of annual volume, we partnered with a small bank in St Louis, and suddenly our business doubled and then doubled again and then doubled again. It has since doubled again and yet again - all in the last 64 months.

Those five-year-old articles arose in part because of my new exposure to the acquiring industry from a completely different perspective - as a highly regarded "member" vs. a low-life ISO. (That's how it was viewed by our association brethren - this too has changed!)

I shared a lot of my views and knowledge with Paul Green's devotees about how the system works. My approach to business was always to give as much information as possible to my sales organization, but now thousands of Green Sheet readers were getting the same information. Fundamental precepts like interchange, revenue splits, processing costs, surcharging, monthly and transaction fees and other constructs previously hidden from salespeople were exposed to the sunlight. Many ISOs continue to resent me for having done this, but many of the portfolio-builders across America still thank me after all of these years.

The Green Sheet, to its significant credit, continues to be the honest broker of information to our industry, and I continue to be one of its biggest fans. I have read every single article and book that Paul Green has ever published, and that is saying a lot!

In the interest of continued full disclosure, I must say again that I come to this place and write this series of articles without an "open mind." There are a few writers in our industry who are independent and above the fray. I am not one of them. I am a writer who has been in the battle for many years and obviously cannot avoid being influenced by my experiences and self-interest.

With those caveats exposed, I begin this renewed series of articles with the same sense of excitement that I have been fortunate to experience several times in my career. For the past year, I have felt like a kid in a candy store - a kid who really, really loves candy!

Back in 1969, when the Bank of Illinois hired me to "get in the computer business," there were so many applications to develop that we couldn't possibly do all of the ones that we could justify. We chose automating our DDA system (going to daily interest and eliminating the passbook for savings accounts), payroll processing for bank commercial customers and telephone billing for America's remaining rural telephone companies.

We took a pass on becoming the Midwest processor for that newfangled BankAmericard that B of A was taking across the country, charging 3% discount fees to merchants! Decisions like this had to be made because the new IBM 360 family of computers opened so many new opportunities to cost-effectively automate the business world.

In 1979, when Radio Shack was rolling out 32K desktop computer systems for $1,500, the opportunities to create small-business solutions were enormous. Some guys, like Bill Gates, did a lot better job of taking advantage of this opportunity than I did, but it was fun to be able to choose from so many alternatives to increase the productivity of American business. (Ever heard of the "Electric Pencil?")

Now as 2002 comes to a close, history is repeating itself. The payment industry is ripe for more innovation than it has ever seen. Just look at The Green Sheet every couple of weeks. The ideas and opportunities are just overwhelming. Yes, many of them are ill-conceived solutions looking for real merchant pain and don't make a lot of sense in the marketplace. But it has always been this way in the world of hardware and software product development. Today is no different.

I believe the industry we have known for the past couple of decades is slowly being stood on its head, and a lot of folks aren't paying attention. Many of our industry observers are just plain wrong, in my view, about such conventional notions as:

  • The payment industry will be comprised of two or three players who will be left standing after "the consolidation."
  • Processing is a commodity business, just like electricity or natural gas.
  • Scale is the primary driver of profitability.
  • Margin compression rules the day.
  • The cost of entry into the acquiring business is prohibitive.
  • Merchants won't buy new terminals because the old stuff still works.

As has been true since John von Neumann constructed the first working, stored-program digital computer (in the basement of an Institute for Advanced Studies building on Olden Street in Princeton, N.J., in 1947), new tools placed into the hands of intelligent, motivated leaders can change the world! These new tools and capabilities already have arrived on today's scene. Here are 10 that get me excited:

  • Technology that allows for long-distance telephone calls to cost less than three cents a minute billed in one-second increments.
  • Cheap, multi-application POS devices with fast modems. A four-megabyte, multi-application POS device in which the processing power can be sliced into numerous integrated or independent applications now costs less than $400!
  • Universal availability of debit cards to provide real solutions to the unbanked and financially challenged consumer with virtually no risk to the merchant.
  • Internet delivery of real-time transaction data on the fly.
  • Client/server authorization centers that cost less than $2 million.
  • Real-time file builds and download file maintenance systems.
  • Digital to voice to digital conversion of messaging.
  • Storage Area Networks that can store the equivalent of all the material in the Library of Congress for less than $1 million.
  • Biometrics.
  • Smart cards.

These technologies are being rolled out today by nimble, technology-savvy companies in niche markets. Yet the majority of the 25-plus billion transactions processed in today's U.S. payment industry are authorized, captured and settled on systems designed in the 1980s and '90s.

Many of these old architectures are dressed up with GUI interfaces and pretty Internet delivery of reporting. Yet, fundamentally, they continue to be slow, asynchronous front ends and inefficient, labor-creating, BET table-driven back ends with software architecture designed before we ever heard of SANs and card-not-present interchange levels, not to mention the recent caving of the telecom industry's pricing models.

This series of articles will focus on updating the original "Knowledge Is Power" series. It also will focus on defining the tectonic movements that I believe will fundamentally change the economics as well as the products and services offered by our industry before the end of this decade. This isn't going to be your grandfather's payment industry for very long.

Bob Carr is the Founder, CEO and Chairman of Heartland Payment Systems, the nation's largest privately owned merchant acquirer and ninth largest overall, with annual revenues exceeding $300,000,000. Heartland was recognized by INC Magazine as the 57th fastest-growing private company in America and is one of the 10 largest INC 500 companies. Bob was a Founder and Vice President from 1988 to '90 of the Bankcard Services Association, which has since become the ETA.

Before entering the bankcard industry in 1986, he developed computer software systems for unattended fuel pumps and created the first integrated accounting applications for PCs. He also started the computer department at the Bank of Illinois and served as the Director of the Computer Center and as a mathematics instructor for Parkland College. He earned degrees in mathematics and computer science from the University of Illinois in 1966 and 1967. To learn more about Heartland, visit or, or send an e-mail to Bob at

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